Of the many things that have come out of the digital and internet space is online travel bookings. Priceline Group Inc. ( PCLN ) and Expedia Inc. ( EXPE ) are two goliaths of the space, and have incredible market share in the segment. Both companies are very widely used, and they cater to everyone regardless of his or her budget for a vacation or excursion. But which is the more rewarding choice for investors?
PCLN, and EXPE, just like their smaller sibling Orbitz Worldwide Inc. ( OWW ), mainly make their money through advertising and bookings. They seek to sell themselves as the cheapest and most secure online travel agent websites; however which one of them is more successful than the other? We know that OWW is tiny compared to EXPE and PCLN, so we are leaving it out of the competition, as it would not be a logical comparison.
It would also be important to add that OWW is not faring too well, and recently, American Airlines and US Airways decided to pull flight listings from Orbitz-run websites in a long running dispute over fees that the travel company charges to list and sell the flights.
Beyond that though, we know that PCLN is the largest company within the industry; however, it maintains a very high stock price per share, which does make some investors pause, as it is currently more than $1,200. EXPE is up there as well though, and if things go well for the company, we might see it overtake PCLN in the near future.
So, which company has better prospects? In other words, which company should investors consider adding to their portfolios?
EXPE's portfolio of brands includes Expedia.com, which is the main service online travel agency; Hotels.com, which is a hotel-focused booking service, has grown in popularity in recent years. EXPE also owns Hotwire.com, a discount travel provider; Expedia Affiliate Network (EAN), which powers business for both travel and non-travel brands.
EXPE also maintains more than 10,000 active affiliates globally, such as, luxury travel specialist, Classic Vacations; destination services and concierge services provider Expedia Local Expert (ELE); Expedia CruiseShipCenter, with home-based agents and retail locations in the United States and Canada; Egencia, the corporate travel management company; eLong, Inc. (eLong), China's online travel company, and European online hotel specialist, Venere.com.
Expedia has also been careful and selective in its acquisitions. Recent acquisitions include a 19.9% interest in Wotif.com Holdings Ltd, and also Auto Escape Group. Expedia also has Trivago, a large worldwide hotel search site too.
The company was first established by Rich Barton and Lloyd Frink and run by Microsoft ( MSFT ) and later became independent because it did not longer add anything of value to MSFT's software intensive business, and the management behind the decision was concerned with how they would contribute to MSFT, mainly a software technology giant. Nowadays, the company has a market capitalization of around $10.99 billion.
EXPE is headquartered in Bellevue, Washington, and operates 30 localized sites for 30 international locations, mainly in Europe, South America, and Asia. EXPE makes most of its money through advertising and bookings, just like PCLN. However, it is important to note that EXPE is far outspending PCLN (relative to size of company), when it comes to spending on advertisements, inventory additions, acquisitions, and other expansionary initiatives.
Personally, I have talked to many people who use online travel agencies, and most of them have surprisingly said that they used EXPE. What is more astonishing is that someone like me, who travels often, has never heard of PCLN until a few years ago. Maybe the extra advertisement spending really is working well for EXPE's future growth prospects.
PCLN is an online travel company that offers its customer hotel room reservations at close to 300,000 hotels worldwide through many of its portfolio brands, including Booking.com, priceline.com, and Agoda. In the U.S., the company also offers its customers reservations for car rentals, airline tickets, vacation packages, and cruises through the priceline.com brand. The company also has car rental reservations through its rentalcars.com brand.
Priceline's first acquisition was in 2004, when the company acquired Active Hotels Ltd., a hotel booking service for the European market. Following that, it added Booking.com; a reservation service operating primarily in Europe, then Agoda.com, a Singapore-based online accommodation booking service which supplies services similar to PCLN's, but mainly honing in on the Asia-Pacific region.
PCLN continued its expansionary plan by acquiring RentalCars.com, which is an online car rental service; Kayak.com, and lastly OpenTable, for a deal that is roughly worth a staggering $2.6 billion. These acquisitions show the degree of how dedicated PCLN is to expanding its global reach, and how it wants to eliminate any other company that is in competition within the industry.
PCLN is an American commercial company headquartered in Norwalk, Connecticut, US. It was first established by Jay S. Walker, however currently he is not the chairman, and a significant chunk of the company's holdings has been purchased by Cheung Kong Holdings. The online travel company maintains the distinction of being the largest online travel bookings company, and it is amazing how it still has a lot of room to continue growing. Today, the company is by far the largest in its industry, with a market capitalization of $65.58 billion.
EXPE's financials have not been bad at all. The company had a dividend yield of $0.18/share for the most recent quarter (ended on 6/30), which was 3 cents above the previous quarters' dividend yield, a good sign for an improving stock. EXPE has made $1,494.63 million in sales, and a gross profit of $1,194.13, but a meager net income of $89.37 million.
This is not a good figure, however, it is understandable as the company put $1,064.91 million in research and development, depreciation/amortization expenses, and selling, general, and administrative expenses. EXPE maintains a diluted net EPS of $0.67/share. EXPE also has a forward P/E ratio of 25, slightly worse than PCLN's P/E ratio of 24.98, however the difference is negligible.
As of last quarter, EXPE positively surprised the Zacks Consensus Estimate EPS of $0.68/share by +38.24%, or 26 cents (posting $0.94/share). Many analysts have also revised their estimates for the current quarter's (9/2014) EPS estimates though, and two of them have been positive, however, four of them have been negative. Nonetheless, this moved the Consensus Estimate Trend slightly up, from $1.61/share 60 days ago, to $1.62/share. Currently, EXPE has an earnings ESP positive surprise of +0.62%.
PCLN's financials have been great for the past quarters. PCLN has made $2,123.58 million in sales, and a gross profit of $1,183.00, and a sizeable net income of $576.45 million. This stands as a relatively good figure, as the company invested $1,149.99 million in research and development, depreciation/amortization expenses, and selling, general, and administrative expenses. PCLN maintains a diluted net EPS of $10.98/share.
As of last quarter, PCLN positively surprised the Zacks Consensus Estimate EPS of $11.34/share by +4.50%, or 51 cents (posting $11.85/share). Many analysts have also revised their estimates for the current quarter's (9/2014) EPS though, and seven of them have been positive over the past 60 days, while four of them have been negative over the past 60 days as well.
Nonetheless, this moved the Consensus Estimate Trend slightly up, from $20.42/share 60 days ago, to $20.57/share. Currently, PCLN has an earnings ESP of -0.19%. It is worth mentioning that PCLN does not have plans to pay dividends in the foreseeable future, nor does it currently pay a dividend.
There is no doubt that both EXPE and PCLN are excellent companies to invest in for the long-term profits, however, PCLN seems likely to come out on top, as it is more diversified across the various travel segments. PCLN is more internationally focused then EXPE, and it is also more hotel focused, which is very important, since that is where almost all the money for these behemoths come from.
PCLN also has the lowest cost structure in the industry, and they offer customers (with all varying budgets) arguably the cheapest prices from around the web. Looking at PCLN's financials, it is also worth mentioning, that PCLN's EPS Surprises have been far more positive and very much telling as to the company's success as of late.
According to a 2012 CNBC report, a drawback that PCLN is not necessarily suffering from now, but might come back to bite the company, is how most of its revenue, about 50%-60%, is coming out of Europe, which makes PCLN considerably exposed to European geopolitical matters, such as the Ukraine-Russia conflict.
Another element worth looking at is how Priceline's return on assets for the previous quarter (ended on 6/30) was 21.46, while EXPE's was 4.99. Another important metric to look at would be operating margin. PCLN maintains a 30.66 operating margin ratio, while EXPE maintains an 8.09 operating margin ratio. This shows how PCLN is far more efficient and a cost-effective company than EXPE.
This can easily be attributed to its international supremacy over EXPE. Trivago does provide EXPE with fuel to grow and expand, however, PCLN is far ahead thanks to capitalization in various US, EU, and worldwide markets. I would say pullback opportunities are definitely to be exploited, as investors continue to carefully watch these two important travel stocks moving forward.
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